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MasterCard Allies with Alibaba

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Expanding its presence in the high-growth generating region of China, MasterCard Inc. (MA - Free Report) announced a Memorandum of Understanding (MoU) with China’s leading eCommerce giant Alibaba Group last week.

Through this MoU, both MasterCard and Alibaba intend to tap eCommerce opportunities, within small and micro businesses as well as consumers in and around China. Moreover, the parties laid out other business-related issues that deal with mutual aid and collaboration as well as intellectual property violations.

MasterCard is working on its long-term growth strategy for eCommerce not only to expand its geographic horizons in the emerging markets of the Asia-Pacific, but also to gain competitive edge over rival Visa Inc. (V - Free Report) . Subsequently, the company plans to generate growth in the eCommerce arena by teaming up its digital service – MasterPass with Alibaba’s efficient payment platforms – AliExpress and AliPay.

Through this association, both the parties expect to promote a better eCommerce environment and bring out user-friendly and secure payment solutions for cross-border transactions, merchant acceptance and bill payments, thereby improving the customer’s experience.

Building a Name in China

However, this is not the first time the company is nurturing an alliance with Alibaba. The latter had joined forces with DataCash in the past, which was acquired by MasterCard in Oct 2010. Further, MasterCard works closely with China UnionPay – the sole bank card transaction processing company in the region – as per a MoU signed in 2010.

In September last year, MasterCard also introduced first dollar-denominated credit card in China in association with Citibank. Both China UnionPay and MasterCard can issue these cards. Such initiatives are gradually helping the company better penetrate the otherwise highly-regulated market in China.

Overall, MasterCard benefits from strong secular demand growth, meaningful international exposure, high barriers, excellent pricing power and impressive operating leverage. We believe such long-term growth strategies are also crucial and should prove beneficial for sustaining competitive pressures and generate optimism over management’s expectation of delivering earnings growth of over 20% in the next two to three years.

While MasterCard carries a Zacks Rank #4 (Sell), other strong electronic payment service providers include Visa, Fiserv Inc. (FISV - Free Report) and Total System Services Inc. (TSS - Free Report) . All of these carry a Zacks Rank #2 (Buy).

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